Australian Property

Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.

With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.

There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.

What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.

Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.

MacroBusiness cover all elements of Australian property daily.

These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.

Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.

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Has Darwin really shed its boom/bust tag?

By Leith van Onselen The Australian Financial Review recently ran an interesting article arguing that the Darwin economy is becoming more diversified and less prone to boom/bust cycles, which should help support housing values and reduce the risk of a significant housing correction down the track: Darwin’s emerging status as a gas hub signals the

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Bloxo: No bubble now or ever

Paul Bloxham has produced a new document aiming to debunk fears of an Australian housing bubble. Find it below. There’s nothing new here but the conclusion is extraordinary: The RBA would not be too worried about the current rate of housing price growth. In fact, the rise in housing prices would be largely as expected

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Victorian housing activity rockets

By Leith van Onselen It has taken a long time, but after a prolonged period of inactivity, the number housing transfers and mortgage lodgements in the state of Victoria skyrocketed in September, according to new figures released by the Department of Sustainability and Environment (DSE).   Looking at the transaction side of the market first,

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Auction clearances ease

By Leith van Onselen Reported auction clearance rates in Australia’s two biggest markets were solid over the weekend. In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 71% on 712 auctions reported to the REIV, although 80 auctions were listed as “no result”, meaning there could be some downward revision once

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Chris Joye: The risk in housing investment

Chris Joye continued his string of excellent critiques over the weekend applying some simple investment metrics to property investment to illustrate its risks: …Many buyers ignore the risk of loss and rely on a “deterministic”, or single, rate of capital appreciation when evaluating an asset – typically 6 per cent or 7 per cent. What they should be

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Two speed housing

Find below a new note from Westpac on housing markets: The last few months have seen a significant shift in Australia’s housing markets with a surge in auction activity and signs of a quickening in price growth. The recovery, which up until now has been a mediocre, uneven affair that has been slow to respond

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Dr Andrew Wilson, raging bear?

What a spectacular reversal in Australian property polarities we are witnessing. Bears, who have celebrated the slow melt (which is intact around much of the nation) are flipping to panicked bullishness, while the bulls, frightened the bubble debate will become self-fulfilling for rate hikes, have turned into bears. APM maestro and bull per excellence, Dr

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Melbourne’s broken housing market

Alan Moran of the Institute of Public Affairs makes plenty of sense today on housing markets. From the Herald Sun: Commonwealth Finance Minister Mathias Cormann has argued against such a rise in interest rates and downplayed fears of a price bubble, arguing that higher prices are self-correcting because they lead to increased supply. For most

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The free-for-all of property advice

Cross-posted from The Conversation.     Record low interest rates are stoking Australia’s property market, with some expressing concern that property spruikers are targeting self managed superannuation funds investing in the sector. Providing property investment advice can be a very lucrative business. Anecdotally, a property investment adviser can earn anywhere between $20,000 to $40,000 commission on

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Stock on market falls unseasonally

From SQM: Figures released by SQM Research reveal that the level of residential property listings around the nation fell during the month of September, with national stock levels decreasing by -3.4% and coming to a total of 342,979. Month on month, all capital cities recorded declines apart from Hobart, which increased ever so slightly, by

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Bankers shout down bubble

From BS, CBA CEO Ian Narev: “We all know that in a sustained low-interest rate environment these risks exist and we’ve got to be alive to them,” he said. The best defence against housing bubbles is “good, conservative, prudent bank management,” which was evident in Australia’s banks, he said. Mr Narev said there should be

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AFG Mortgage Index falls

The AFG Morgtage Index is out for October and has fallen for the first time in several months, down 1.2% but still up 26% year on year: A few more points of interest include investor’s share or mortgages falling slightly but first home buyers remaining unchanged and very low. AFG itself makes a big deal

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Web traffic forecasts mortgage surge

From the AFR: Australia’s biggest home loan comparison website,Finder.com, is predicting the number of home loans financed in September will be up 70 per cent on January figures based on internet traffic analysis. Finder.com expects the official number of home loans financed in August will hit 59,000, while September figures will show more than 61,000 up from

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Bloxo: Housing boom beginning

From Bloxo: Australian housing prices are lifting strongly, supported by low interest rates, and despite only weak jobs growth in recent months. Today’s data showed that capital city housing prices rose by +1.6% in September and by +3.7% over Q3, to reach a new record level. Improvement in the housing market has been matched by

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Has the new homes bounce ended?

HIA new homes sales is out and recovered a little ground in August: In August 2013, total seasonally  adjusted new home sales increased by  3.4 per cent, partially recovering from  the previous month’s fall of 4.7 per  cent. The rise was driven by a 5.8 per  cent increase in detached house sales  while multi-unit sales

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Sydney, Melbourne house prices rocket

RPData has released its monthly house price results for September and the news is increasingly worrying with the Sydney bonfire spreading to Melbourne (sorry you had to wait like everyone else until today, Leith is having a well deserved week off): RP Data and Rismark International today released housing  market results for September where the

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Who’s doing the lending?

From UBS, who is doing pushing the lending rebound? One word, Macquarie Bank: MQG has been very active in the mortgage market in the last 6 mths, growing  consistently above system (3.6x system in Aug.), and picking up ~15bp of market share – at 1.1%, MQG is now half the mortgage share of BOQ. While MQG

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Bubble denial dances its jig

The great binary machine of the Australian press today lurches from light to dark with a slew of housing bubble denials that are as prolific as they are amusing. It was kicked off by the Pascometer yesterday (thus confirming the opposite) who, despite repeatedly calling the bottom of the rate cycle incorrectly, has nothing but

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Chris Joye versus the bubble

The bubble debate rages on, led by Chris Joye. Late last week he reiterated his concern that we should be “panicking about the future” on Switzer: And he continued his assault upon the potential for an SMSF blowoff as well over the weekend: The impact of self-managed super funds on banking and housing markets is

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Coalition backs rising house prices, ducks reform

By Leith van Onselen While New Zealand’s National Government undertakes bold reforms to improve housing affordability and dwelling construction by removing supply-side bottlenecks, Australia’s new Coalition Government seems intent on ignoring the issue altogether, today supporting higher house prices and the “wealth effect” it bestows on home owners. From the AFR: Treasurer Joe Hockey told

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Melbourne apartment boom to “implode”

Cross-posted from The Conversation The Melbourne apartment surge is just beginning. In the next few years, an unprecedented number of apartments will hit the city’s already crowded skyline. But our new research shows this does not mean more Victorians are embracing inner-city living; rather it is the result of the marketing of thousands of tiny,